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Fact v. Fiction: Buy Here Pay Here

Regardless of your walk of life or level of income, the experience of buying a car can be exhaustive in terms of your time, energy, resources and (of course) money. It doesn’t matter if you’re looking to treat yourself by upgrading to a new model year offering or search through older inventory, car-buying can be a real chore.

This struggle is further amplified for those struggling with challenged credit. No longer searching with any assurance of approved financing, these customers find themselves limited to a select number of dealerships. Such Buy Here Pay Here dealerships exist coast-to-coast but, when working with Buy Here Pay Here, residents should be sure that they can distinguish the fact from the fiction.

 

Selection

A common misconception is that BHPH dealerships are immediately limited in terms of variety and that their vehicles will be older and less desirable castoffs. As with any and all dealerships, BHPH comes in all shapes and sizes. Some will offer greater selection, while other smaller operations may not.

Aside from that, customer is more likely to be limited by which vehicles the dealership will approve them for. As the lender, BHPH dealerships have the right (and responsibility) to determine eligibility based on the applicant’s individual finances. This might mean the difference between being approved for a 2012 Chevy Traverse with 75,000 miles or a lesser-valued 2009 with 125,000 miles. That said, it doesn’t mean that you will have to choose between a high-mileage 1994 Saturn and an equally battle-worn Camry.

If your finances require you to work with a BHPH dealership, take the opportunity to research every such dealer in your area. By exploring their available inventories, you may be able to find the one most likely to satisfy your personal taste in vehicles.

 

Downpayment

While a sizable downpayment can be important in the purchase of any vehicle, there is an outdated mindset that all BHPH dealers are looking for a downpayment equal (or close) to the amount they paid for it. The implication is that this is necessary for them to protect their investment while financing high-risk customers.

While this was true in years past (and may still be carried over by some BHPH dealers) the simple fact is that the escalation of wholesale vehicle prices ruled this nearly impossible years ago. Yes, a sizable down payment will benefit you, but not every BHPH is looking for you to lay down a vital organ or first born as collateral.

 

Interest Rate

While consumers with high credit scores might be approved for APR’s as low as 2 or 3%, those with challenged credit should not expect the same. Rest assured that this is not a judgment, it’s simply a distinction which needs to be addressed.

By financing a customer with challenged credit, BHPH dealerships are assuming greater risk. In turn, the interest rate for a credit-challenged customer should be expected to be higher. This is the basis for one of the biggest criticisms (and misconceptions) of the BHPH marketplace. So let’s address that, as well.

By working with a BHPH dealership, a customer is not immediately subjected to a 30% interest rate. Yes, a distinction between prime and subprime credit scores is important, but there is no automatic line in the sand. Credit scores will differ based on timing, geography, the dealership (as well as its reputability). Sure, there may be some dealerships that utilize the circumstances to further their own profitability, but they should be viewed as the exception.

An audit of BHPH dealers acknowledges many interest rates at (or just below) 20%, with countless others averaging between 12.9% and 17.9%. If you’re honest with yourself about the interest rate that you are entitled to, you can use this as a means of assessing the credibility of BHPH dealerships.

Credit Reporting

Another element of the BHPH experience that continues to evolve relates to credit reporting. One of the ever-present warnings associated with Buy Here dealers was that not everyone was diligent in reporting on-time payments to the Credit Bureau.

For many customers, working with a BHPH dealer is an important step in repairing their credit. The opportunity to make on-time payments provides an opportunity for those payments to be reported, benefiting the customer’s credit score.

While less reputable dealers were guilty of not reporting these on-time payments, the reputation of the BHPH industry as a whole took a hit. The fact is that today’s BHPH dealerships are regulated and must report payment history, good or bad. Best practice for any customer is to ask up front, as it allows them to distinguish trustworthy BHPH dealers from their less-reputable counterparts.

 

Repossession

If we’re saying it ‘like it is’, any apprehension about repossession might be an opportunity for the customer to hold a giant mirror up to themselves. Once you’ve signed a purchase & sales agreement there is some sort of expectation that all parties have performed their own due diligence.

For BHPH dealerships, that due diligence is summarized by some of the steps listed above. They have determined the income level and credit-worthiness of the applicant, and have confirmed the vehicles best-suited to their budget.

That said if a customer is forthright with the dealership (as well as with themselves) they have no excuse but to make the payments they are contractually expected to make, in the timeframe which they are contractually obligated to make those payments in.

Bottom-line: no-one should fear repossession unless they are failing to meet their end of the contract. And if they are, they need to re-evaluate whether or not they should have entered into that contract in the first place. With that in mind, no applicant should cast aspersions on the steps that any dealership or creditor takes, to protect (what is essential) their property.

 

Final Thoughts

BHPH dealerships perform a service and one that can be extremely valuable to customers who are looking to rebuild after experiencing difficult times. That said, it remains important for both parties to understand each other’s terms before agreeing. With smart questions asked, and full disclosure on both sides, everyone can benefit.

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